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Research paper example essay prompt: Labor Demand - 750 words

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Labor Demand In light of the limits that have been
placed on this answer I will only focus my
comments on the demand for labor and on the other
hand the supply of labor. First the demand for
labor. This is to me by far the most interesting
aspect of the course. Labor demand is derived from
the firms desire to maximize profits. This is a
basic assumption of labor demand.

Will the firms
continually try to make changes that will improve
the profitability of the firm? We assume that yes
they will. Firms are basically price takers. Now
their main decision is what quantity of their
product to produce. This is because as they hire
more people they basically increase output so the
decision hire more people and the decision to
produce more are basically the same decision. The
optimal output will equate marginal revenue with
marginal cost.

Marginal revenue is the product
price in a purely competitive market. Marginal
cost is therefore the cost to produce that unit.
MPl is the change in output of the firm. What
happens when a firm decides to produce more? They
must hire more labor assuming that capital remains
constant. If a firm could continuously hire more
peole and increase their MRP then we would live in
a utopian society with no unemployment and peace
and happiness everywhere. But alas we live in a
world with diminishing returns and as the firm
highers more people it reaches a pont where each
new person costs a little more when compared with
their output then the person hired before them.

A
good example of this is digging a hole 4 feet by
8feet by 6feet . One person would do it in about
half the time that two people could do it. But
three people would not do it in one third of the
time. This loss in efficiency is what I am talking
about. In fact soon you couldnt fit all of he
people into the hole and it would be so cramped
that it would atually take longer to finish the
hole.

If this happened then they would have a
negative marginal product of labor. So the firm
should keep hiring people until its marginal
revenue product exceeds its marginal expense. But
can they get people to come to their camp? Some
time scarcity in the labor force pushes the wage
ratre up and this increases the marginal expense
this will shift the employment level and reduce
the amount that the firm is willing to hire unless
at the same time marginal revenue product goes up.
This will have the opposite effect and keep
employment up. But under most circumstances one of
these moves more than the other and a new
equilibrium is found. What this can really be used
for in my personal life is the determination of
wages.

Before this class I had no idea how I would
decide how may people to hire. Now I know that if
I hire two people for 10 dollars per hour then
they had better be adding at least x*$10 per hour
to my company. What a bonus it was to end up
taking your class and have something that I can
immediatley put to use in the real world. Now I
will comment on the supply of labor. A lot of this
is intuitive.

I understood it without knowing why
or how. It just feels right. If the salries for
all markets except one are held constant and that
markets average wage increases then we should see
a rise in the supply of people willing to be
secretaries. What I find intersting about this is
that this increase in the supply of secretaries
should lower the amount of money that the employer
is willing to pay. What stabilizes higer wages are
other factors.

Such as the cost of training and
finding new employees just to name a couple.
Sometimes the labor supply will decrese while the
demand for labor increases this will result in
magnified wage increases. This is because the
firms in that market have to compete more
ferociously for labor and since demand for their
product is high they are willing to pay more to
attract employees. What is interesting in my
mindis that the obvious thing happens it is to
hard for all the people that left one market to
come back so they stay where they are until the
cost for tranfering is lower than their perceived
reward for switching markets.